Lawmakers Reach Accord on Huge Financial Rescue

Vote is Imminent on $700 Billion Bailout Plan

By Lori Montgomery and Paul Kane

Washington Post Staff Writers

Sunday, September 28, 2008; 2:56 AM
Congressional leaders and the Bush administration this morning said
they had struck an accord to insert the government deeply into the
nation's financial markets, agreeing to spend up to $700 billion to
relieve Wall Street of troubled assets backed by faltering home
mortgages.
House and Senate negotiators from both parties emerged with Treasury
Secretary Henry M. Paulson Jr. at 12:30 a.m. from a marathon session in
the Capitol to announce that they had reached a tentative agreement on
a proposal to give Paulson broad authority to organize one of the
biggest government interventions in the private sector since the Great
Depression.
Full details of the plan were not immediately available. Lawmakers
said their staffs would be working through the night to assemble the
package and post it on the Internet.
"We've made great progress, but we have to commit it to paper before
we can formally agree," said House Speaker Nancy Pelosi (D-Calif.), who
has pledged to make the plan available to the public for at least 24
hours before the House votes on it. A vote could come as early as
tomorrow in the House, with the Senate expected to follow soon after.
"We've been working on this a long time. We've still got more to do to
finalize it, but I think we're there," Paulson said. "So far, so good."
Rep. Roy Blunt (R-Ohio), who represented House Republicans, the
group that had raised the most serious objections to the plan, said he
was pleased with the progress made but that he had to take the proposal
back to his caucus before committing his support for it. "I look
forward to what we're going to see on paper and presenting these ideas
to my colleagues and getting their reaction," Blunt said.
A senior administration official, who requested anonymity to speak
freely about the plan, said both sides had made significant concessions
to achieve compromise. The Bush administration has agreed to accept a
number of Democratic demands, including:
 
· The money would be dispersed in segments, with Paulson receiving
$250 billion immediately, $100 billion upon White House certification
of its necessity and the final $350 billion only after Congress has
been given 15 days to object.
 
· Firms participating in the bailout would be required to grant the
government warrants to obtain nonvoting shares of stock, so taxpayers
can benefit if the companies return to profitability.
· Firms taking advantage of the bailout would be required to limit
compensation for senior executives, with especially severe limits on
"golden parachutes" at failing firms. The compensation limits will be
enacted primarily, but not solely, through the tax code by reducing tax
deductions for firms that pay executives more than $400,000 a year.
The administration also agreed to Democratic demands that the
financial services industry should help pay for the program. Under the
agreement, the president would be required to propose a fee on the
industry if the government has not recovered its money through sales of
the assets within five years.
Democrats also made a number of concessions, abandoning demands that
bankruptcy judges be empowered to modify home mortgages on primary
residences for people in foreclosure. They also agreed not to dedicate
a portion of any profits from the bailout program to an affordable
housing fund that Republicans claimed would primarily assist social
service organizations that support the Democratic Party, the official
said.
Meanwhile, House Republicans won a major victory, persuading
negotiators to include a provision that would require the Treasury
Department to create a federal insurance program that would guarantee
banks and other firms against loss from any troubled asset, the
official said.
The plan to rescue the U.S. financial markets was first advanced by the
Bush administration in a late-night meeting with lawmakers just 10 days
ago. Under the proposal, Paulson would be authorized to purchase
mortgage-backed assets from struggling firms in hopes of easing a
credit crunch that has pushed global markets to the brink of collapse.
With home prices plummeting, many of those assets are now almost
worthless, and investors have lost confidence in many of the firms that
hold them. That has undermined some of the biggest names on Wall Street
and caused banks to stop lending money, sparking a credit crisis that
threatens to deliver a devastating blow to businesses, consumers and
the broader economy.
Administration officials have stressed that the ultimate cost of the
bailout would be much less than $700 billion because the government
would eventually sell the assets it purchased and recover most, if not
all, of its investment.
Yesterday's talks, conducted mainly in Pelosi's suite of offices on
the second floor of the Capitol, were focused heavily on how to cover
the cost of the program so taxpayers don't get stuck with the bill.
"We believe that the taxpayer should not be left holding the bag at
the end of the day, and we've proposed a way to address that," said
Rep. Chris Van Hollen (D-Md.), a member of Pelosi's leadership team.
Democrats said there were no outstanding issues remaining, but that
negotiators need to see the words on paper before they can sign off on
the plan. "It's really a question of seeing what we believe we've
agreed to," said Sen. Christopher J. Dodd (D-Conn.), chairman of the
Senate Banking Committee.
Even strong opponents of the plan said they expected it to pass.
Sen. Richard C. Shelby (R-Ala.), the senior Republican on the Senate
Banking Committee, who has refused to participate in the talks, said a
"critical mass" was forming behind the measure because of fears that
Congress's failure to act would cripple financial markets and devastate
the economy.
 
Yesterday's negotiations, which began shortly after 3 p.m., were at
times tense and confusing, according to participants. At one point,
according to Sen. Kent Conrad (D-N.D.), one senator sought advice from
investor Warren E. Buffett, one of the world's richest men and a
director of The Washington Post Co.
From 3 p.m. to 5:30 p.m., Conrad and other lawmakers met with Paulson
around a massive table in Pelosi's conference room under an ornate
portrait of Abraham Lincoln. Among lawmakers, Democrats outnumbered
Republicans nine to two, an imbalance that so irritated Paulson that he
called and complained to Senate Majority Leader Harry M. Reid (D-Nev.),
according to three GOP sources familiar with the call.
Reid told Paulson he would not pull any of his colleagues out of the
meeting. A Reid spokesman, Jim Manley, said: "If the secretary doesn't
like it, that's just too bad, because he is going to need the help of
each and every one of them to sell the president's plan to the
Democratic caucus and the American people."
After a break for dinner, the sides scattered into at least three
separate groupings -- Paulson huddled in House Minority Leader John A.
Boehner's office with other GOP leaders, Democrats in Pelosi's
conference room and Pelosi in a separate suite talking with other
Democrats.
Rep. Rahm Emanuel (D-Ill.) and Pelosi's chief of staff spent a couple
of hours in shuttle diplomacy, frantically walking from room to room
carrying sheets of paper. Conrad, the chairman of the Senate Budget
Committee, said the negotiators were "shopping language" of the bill's
draft versions. He and Rep. Barney Frank (D-Mass.), chairman of the
House Financial Services Committee, also spent time in Boehner's office
with Paulson.
By 11 p.m., the three groups had once again converged in Pelosi's office to strike a final deal.
Yesterday's focus on limiting taxpayer exposure may help rally
support in Congress, where lawmakers have been reluctant to back the
hugely expensive and unpopular bailout measure less than six weeks from
the November elections. But it could unnerve Wall Street, where
investors are seeking the largest possible program with the fewest
strings attached. They also hope lawmakers approve it before tomorrow's
opening bell.
In his public testimony and private remarks, Paulson has repeatedly
emphasized the need to spend $700 billion to soothe nervous markets. At
that price, the government's upfront investment in the rescue package
would be more expensive than the current cost of the Iraq war, which
stands at about $650 billion, according to the Congressional Research
Service.
But the White House and politicians on Capitol Hill have said the
government could earn back much of its money, or even turn a profit.
"Many of these assets still have significant underlying value,
because the vast majority of people will eventually pay off their
mortgages," President Bush said yesterday in his weekly radio address.
"In other words, many of the assets the government would buy are likely
to go up in price over time. This means that the government will be
able to recoup much, if not all, of the original expenditure."
Bush attempted to address criticisms from the right and left that
the plan would bail out irresponsible financiers while doing nothing
for regular Americans. Echoing frequent comments by him and his aides,
Bush said allowing Wall Street to collapse further would pose greater
dangers to the economy, perhaps triggering a "deep and painful
recession."
"The rescue effort we're negotiating is not aimed at Wall Street --
it is aimed at your street," Bush said. "And there is now widespread
agreement on the major principles. We must free up the flow of credit
to consumers and businesses by reducing the risk posed by troubled
assets."
Democratic leaders have emphasized to rank-and-file members that
Paulson has told them that he could only spend about $50 billion a
month on the securities purchase program. Of the $700 billion figure,
House Majority Leader Steny Hoyer (D-Md.) said: "Nobody believes that's
going to be the final cost."
Staff writer Dan Eggen contributed to this report.